Mark Latham Commodity Equity Intelligence Service

Tuesday 16th February 2016
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    China's steady commodity imports are remarkable

    China's imports of major commodities presented a "steady-as-she-goes" picture in January, which doesn't sound that exciting but should go some way to hosing down some of the more alarmist fears over the state of the world's second-biggest economy.

    China's crude oil imports did drop to 6.29 million barrels per day in January, a decline of 20 percent from December and 4.6 percent on the same month in 2015.

    But seen in the context of December being the record high for crude imports and the Chinese New Year holidays being 11 days earlier this year than in 2015, it becomes clear that the crude imports are within the realms of reasonable variation.

    It's also worth noting that exports of refined fuels fell in January to 679,000 bpd from December's record 975,500 bpd, meaning less crude was needed for oil product exports.

    Iron ore imports were weaker in January from the prior month, dropping 14.6 percent to 82.19 million tonnes.

    However, as for crude oil, December 2015 had been a record month for iron ore imports, and January's figure was still 4.6 percent above that for the same month a year earlier.

    There was most likely an element of stockbuilding ahead of the early February Chinese New Year holidays, as witnessed by a gain of some 2 million tonnes in port inventories over the month.

    But it also seems clear that despite the much-publicised woes of China's steel sector, which is battling both excess capacity and weak demand, iron ore imports are very far from collapsing.

    It would be surprising if they managed to improve on last year's record 952.8 million tonnes, given expectations of lower steel output in China in 2016.

    Copper continued the January pattern of a drop in imports from elevated levels in December, but still solid when compared with the same month in 2015.

    January's imports were 437,000 tonnes, up 5.3 percent on the same month a year ago, but down 17 percent from December.

    January's commodity imports were generally unremarkable, which is remarkable given the turmoil that was taking place in financial markets at the time.
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    China Created A Record Half A Trillion Dollars Of Debt In January

    Yes, you read that right. Amid a tumbling stock market, plunging trade data, weakening Yuan, and soaring volatility, China's aggregate debt (so-called total social financing) rose a stunning CNY3.42 trillion (or an even more insane-sounding $520 billion) in January alone.

    In fact, since October, China has added over 1 trillion dollars of credit... and has nothing but margin calls, ghost-er cities, and over-supplied commodity-warehouses to show for it... oh and even-record-er debt-to-GDP ratio.

    This is what the unprecedented addition of half-a-trillion dollars in one month looks like - Hyman Minsky called, he wants his chart back.

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    The new Anglo American

    The company announced long awaited plans to restructure its portfolio and address it debt.

    The company will materially streamline its portfolio to 16 assets and three business units – they are diamonds (De Beers), copper and Platinum Group Metals (PGM’s) – Anglo American Platinum.

    “This unique combination of assets, enhanced by our commercial marketing expertise, will have the advantage of benefiting from the ongoing shift away from infrastructure investment towards consumer-driven demand, positioning Anglo American for these expanding markets. We will manage our other assets, in bulk commodities and other minerals, for cash generation or disposal over time.”

    The disposals will targeting $3-4bn for disposals in 2016. Net debt is expected to be less than $10bn by the end of the year assuming current commodity prices and exchange rates.

    Nickel, niobium and phosphates, and Moranbah and Grosvenor metallurgical coal disposal processes are under way.

    Anglo exits iron ore: “Bulk commodities and other minerals to be managed for cash generation or disposal.” The company will continue to reconfigure the Sishen mine, but will consider options to exit at the right time.

    “At the Minas-Rio iron ore operation in Brazil, work has been prioritised to optimise the operation for the current iron ore price environment to ensure that it is cash flow positive in 2016 and subsequent years. Work is also progressing to secure the
    required licences that underpin the full ramp-up over time that will also ensure the long term sustainability of Minas-Rio for all its stakeholders. All such work is expected to be completed over the next three years, at which time options for the
    asset will be assessed.”

    “We have processes in place in nickel, Minas Rio is non-core but we are committed to building and completing the project – we are not announcing the sale process today,” says Mark Cutifani.
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    Moody's downgrades Anglo American's debt to "junk"

    Global miner Anglo American Plc's debt was downgraded further into "junk" territory by Moody's Investor Service, which cited a deterioration in commodities market conditions and a "longer and more uncertain deleveraging period".

    Moody's downgraded the company to (P)Ba3 from (P)Baa3, and said the outlook on the ratings was negative.

    Moody's said it does not expect Anglo American to generate enough operating cash flows to deliver substantial organic debt reduction in the next two years.

    The company is expected to report full-year results on Tuesday.
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    Oil and Gas

    Saudis, Russia agree oil output freeze, talks with Iran to follow

    Top global oil exporters including Russia and Saudi Arabia agreed on Tuesday to freeze output to tackle a global glut but said the deal was contingent on other producers, with Iran absent from the meeting and planning to ramp up shipments.

    The Saudi, Russian, Qatari and Venezuelan oil ministers visited Doha for a previously undisclosed meeting - their highest-level discussion in months on joint action to help prices recover from their lowest in more than a decade.

    The Saudi minister, Ali al-Naimi, said freezing production at January levels was an adequate measure and new steps to stabilise the market could be considered in the next few months.

    He said he hoped other producers would adopt the proposal, while Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday.

    Iran has pledged to raise supply steeply in the month to come as it looks to regain market share lost after years of international sanctions, which were lifted in January.

    The Doha meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade.

    The slump has been longer and deeper than anyone predicted, and the mood may be shifting among producers that have been determined to defend market share rather than prices.

    Within the Organization of the Petroleum Exporting Countries is a growing consensus that a decision must be reached on how to prop up prices, Nigerian Oil Minister Emmanuel Ibe Kachikwu told Reuters late last week.
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    Oil stages late gains as Saudi, Russia, Venezuela to meet

    Oil prices rose nearly 2 percent on Monday on news that ministers from Saudi Arabia, Russia, Qatar and Venezuela would hold a previously unpublicised meeting in Doha this week, adding to speculation of a global output deal.

    Benchmark Brent crude gained more than 60 cents in after-hours trading.

    Russian Energy Minister Alexander Novak will attend the meeting on Tuesday in what would be the largest producer gathering since OPEC's last formal session in early December, sources familiar with the matter told Reuters on Monday.

    After settling at $33.39 a barrel earlier in the day, barely changed from Friday, Brent rose to more than $34 a barrel by 2:30 p.m. EST (1930 GMT). That adds to Friday's 11 percent surge, the biggest one-day jump in over seven years.

    Venezuelan Oil Minister Eulogio Del Pino made no comment on his arrival to the Gulf state of Qatar on Monday, a witness said. Del Pino has been visiting major oil producers to rally support for the idea of "freezing" production at current levels to stem spiralling prices, sources have said.

    The meeting is the latest sign of renewed efforts by OPEC members to try to tackle - possibly together with non-OPEC producers - one of the worst oil gluts in history, which has pushed prices to the lowest in more than a decade.

    On Monday, Russia's representative to OPEC said it was in talks on coordinated output cuts with individual OPEC members, mainly Venezuela, but not with the organisation itself, news agency Interfax quoted him as saying.

    "The fact that the market has reacted so strongly certainly indicates that these comments are being taken seriously," analysts at Frankfurt-based Commerzbank wrote.

    Iran is exporting 1.3 million barrels per day of crude, and will be pumping 1.5 million bpd by the start of the next Iranian year on March 20, a vice president was quoted as saying on Saturday.

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    Russia says better Iran-Saudi Arabia ties would help oil prices: RIA

    Russia wants to see improved relations between Iran and Saudi Arabia at a time when joint action is needed to influence global oil prices, the RIA news agency on Monday quoted Zamir Kabulov, a senior official at Russia's Foreign Ministry, as saying.

    Russia, one of the world's top oil producers, has repeatedly refused to cooperate with the Organization of the Petroleum Exporting Countries in recent years despite the falling price of oil, the lifeblood of its economy.

    Any hope of sealing a global output deal has so far foundered on Iran's position. Tehran is boosting production to try to regain market share after sanctions were lifted, paving the way for it to re-enter the market after a long absence.

    The prospect of cooperation between Iran and leading producer Saudi Arabia is further complicated by the fact that the two countries are geopolitical foes who support different sides in conflicts in both Syria and Yemen.

    "We all need stability on the oil market and a return to normal (crude) prices," RIA quoted Kabulov as saying.

    "And these are the key nations, especially Saudi Arabia and Iran, which is striving to return to the oil market, anticipating the removal of sanctions."

    Some OPEC countries are trying to achieve a consensus among the group, while some non-members back an oil production freeze, sources familiar with the discussions said last week, a possible attempt to tackle the global glut without cutting supply.

    Top exporter Saudi Arabia might be warming to the idea, though it was too early to say whether it would give its blessing because any deal would mainly depend on a commitment by Iran‎ to curb its plan to boost exports, the sources said.

    Even as officials on both sides discussed the possibility, Russia and OPEC continued to pump oil at some of the highest levels in recent times last month, suggesting both were locked in a fierce struggle for market share.

    Benchmark Brent crude LCOc1 has fallen around 70 percent since mid-2014.

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    Shell CEO expects Brazil output to quadruple by 2020

    Royal Dutch Shell , Europe's largest oil company, expects to make robust investments in Brazil's offshore, hoping to quadruple oil and gas output there by the end of the decade, its chief executive officer said on Monday.

    CEO Ben Van Beurden spoke in Brazil shortly after Shell's $52 billion takeover of rival BG Group Plc, approved in late January, took effect.

    He said Brazil will be a key area for the Anglo-Dutch company as it focuses its expanded operations in liquefied natural gas (LNG) and deepwater oil production.

    "We believe in the strong fundamentals of Brazil and the fundamentals of its geology," Van Beurden told reporters in Rio de Janeiro. "We will be looking at a substantial part of our production from Brazil."

    By adding BG's large Brazilian offshore assets, Shell's local output rose sixfold to about 240,000 barrels of oil and natural gas equivalent a day (boepd), or 13 percent of its total of 1.8 million boepd.

    A quadrupling of its Brazilian output would boost production to nearly 1 million boepd by 2020. Shell is already Brazil's No. 2 producer after state-led Petroleo Brasileiro SA, or Petrobras.

    In December, Shell and BG had 7.6 percent of Brazil's total output of just over 3 million barrels a day.

    The BG takeover also makes Shell the world's largest trader of LNG. While it sells LNG to Petrobras for the Brazilian market, Van Beurden and his Brazilian deputy, Andre Araujo, declined to say if they want to buy Petrobras' natural gas assets, some of which are for sale.

    Brazil's importance to Shell is expected to increase as it moves ahead with giant subsalt projects such as Libra, which it is developing with Petrobras, France's Total SA, China's CNOOC, and CNPC.

    Subsalt refers to large hydrocarbon resources trapped deep beneath the seabed by a layer of mineral salts. Libra may hold as much as 12 billion barrels of recoverable oil, according to Brazil's government.

    Shell faces serious challenges in Brazil. Oil prices have plunged since the BG deal was announced a year ago. Petrobras, Shell's principal partner in the country, is in seriousfinancial and legal difficulty after the price drop and a massive price-fixing, bribery and kickback scandal.

    Van Beurden, though, said subsalt areas should be able to break even at oil prices forecast for this year, without saying what those prices might be.
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    Dry Ships: cancelled Petrobras contract

    DryShips Inc. (NASDAQ:DRYS) announced today that Petrobras has given notice of termination on the contract for the platform supply vessel ("PSV") Vega Crusader effective March 6. The contract would have expired on January 8, 2017; the early termination represents a loss in contracted EBITDA of ~$2.2M.

    Further updates: "Given the prolonged market downturn in the drybulk segment and the continued depressed outlook on freight rates, the company is presently engaged in discussions with its lenders for the restructuring of its debt facilities. While discussions are ongoing, the company may elect to suspend principal repayments to preserve cash liquidity."

    "The sale of the Fakarava, Rangiroa and Negonego to entities controlled by our Chairman and CEO Mr. George Economou has failed. In addition, we have reached a settlement agreement with the charterer of these vessels for an upfront lump sum payment and the conversion of the daily rates to index-linked time charters.

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    Ocean Rig gets another two rig contract terminations

    Ocean Rig UDW, a global provider of offshore deepwater drilling services, announced on Tuesday that one of its drilling contracts has been terminated.

    Specifically, Total E&P Congo on February 11, 2016 has given notification to terminate for convenience the long-term contract of the 7th generation ultra-deepwater drillship Ocean Rig Apollo.

    As per the contract Ocean Rig says it is entitled to a termination fee that varies from 50% to 95% of the operating daily rate that will be payable over the balance of the contract.

    The Ocean Rig Apollo will demobilize from Congo in due course and is available for alternative employment. In connection with the termination of the drilling contract of the Ocean Rig Apollo, the company has notified the agent under the respective loan agreement and is currently in discussions with its lenders about the consequences of such termination, Ocean Rig said on Tuesday.

    Ocean Rig Apollo was built in 2015 in South Korea by Samsung Heavy Industries. The three-year contract between Ocean Rig and Total for this drillship was inked back in 2013.

    In addition, Ocean Rig confirmed that Premier Oil on February 12, 2016 terminated the contract for the ultra-deepwater semi-submersible drilling rig the Eirik Raude operating in the Falkland Islands. Ocean Rig has accepted Premier Oil’s termination for convenience and is entitled to a termination fee of up to $62.9 million.

    In case Premier Oil contests the payment of such fee, Ocean rig says the company intends to start arbitration proceedings without any further notice. The Eirik Raude will demobilize from the Falkland Islands in due course and is available for alternative employment.

    George Economou, Chairman and CEO commented: “It is really regrettable that two of our clients have decided to terminate drilling contracts for convenience. This is a reminder of the extremely challenging times facing the offshore drilling industry and oil companies taking unprecedented action to reduce their capital expenditures. The prospects for the industry remain bleak and we currently see limited prospects of a recovery before 2018 at the earliest.”
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    Gas leak halted Peru LNG exports

    Peruvian exports of liquefied natural gas, usually nearly 1 million cubic meters per month, have stopped entirely since mid-January when a key pipeline was ruptured, according to reports.

    The Andean country will likely resume its usual half dozen shipments of between 130,000 and 170,000 cubic meters per month in coming days, Reuters quoted an unnamed source as saying.

    The source, who spoke to Reuters on condition of anonymity, said the pipeline leak first stopped exports. Maintenance work at a liquefaction plant later delayed shipments after the pipeline was repaired, the source was quoted as saying.

    Peru is one of Latin America's biggest LNG exporters and mostly ships LNG to Manzanillo, Mexico.

    Its last shipment went to Spain on 16 January, just before Transportadora de Gas del Peru (TgP) reported a new leak in its 560-kilometre natural gas liquids pipeline, data from state energy regulator Perupetro showed.

    Representatives of Shell, the company that exports the LNG, and Peru LNG, the consortium that operates the liquefaction plant, could not immediately comment. Peru LNG is controlled by Hunt Oil with Shell, SK Corporation and Marubeni holding minority stakes.

    Last year a leak in the same pipeline forced the government to import liquefied petroleum gas, a fuel made from natural gas and used widely in homes and cars.
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    Hoegh LNG halts FLNG business, focuses on FSRUs

    Höegh LNG on Tuesday informed it has made a decision to put all FLNG activities on hold and focus its resources and capital into the FSRU business.

    According to Höegh LNG’s statement, the FSRU business is where the company sees the highest return on invested capital and the most promising market prospects.

    The decision comes due to the oversupplied LNG market and a drop in energy and financial markets which have jeopardized investment in new LNG production facilities, including FLNG.

    Höegh LNG said it will complete its obligations towards existing customers but will not engage in any new FLNG developments.

    However, the company said FSRU market conditions are still encouraging due to new LNG supply growth and increased activity in the segment, both from the producers as well as LNG importers and downstream gas consumers.

    Sveinung J.S. Støhle, Höegh LNG’s president and CEO said, “given the overall market outlook for LNG and the current state of the financial markets, we believe focusing solely on FSRUs is financially and commercially the best strategy for Höegh LNG.”
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    Sweet crude flows from Gatwick Airport oilfield

    First ever crude oil has flowed at encouraging levels from the Horse Hill discovery well being drilled in the Weald Basin near Gatwick Airport.

    The AIM-listed companies with stakes in the PEDL137 onshore exploration licence, namely UK Oil & Gas Investments (UKOG), Alba Mineral Resources, Doriemus, Solo Oil, Stellar Resources and Evocutis, all reported that light, sweet oil had flowed naturally to the surface from an 80-foot zone within the Lower Kimmeridge limestone interval at a depth of approximately 900 metres below ground level.

    After flowing at its own pressure and then being choked back, the well flowed at a steady early oil rate of more than 463 barrels per day (bpd) over more than seven hours and will be continued on Tuesday, before the second and third phases of the Horse Hill-1 well are moved to the shallower Upper Kimmeridge limestone and Portland sandstone zones.

    The companies said the flow rates were far higher than even their most optimistic expectations.

    Stephen Sanderson, executive chairman of UKOG, which has a 20.16% stake in the PEDL137 licence and a 30% direct interest in the Horse Hill Developments Ltd joint venture, said the flow of oil was a "very significant event" for the company and for oil and gas activity in the Weald basin of southern England.

    He added: "The flow test, the first ever in the Lower Kimmeridge limestone within the Weald basin, provides proof that significant quantities of moveable oil exist within the Kimmeridge section of the well and can be brought to surface at excellent flow rates. In this case from a vertical well with minimal stimulation."

    Sanderson added that the planned future use of a horizontal well and "appropriate conventional reservoir stimulation techniques" could increase flow rates even further.

    HHDL, a special purpose company that owns a 65% participating interest and operatorship of PEDL137 and the adjacent PEDL246 licence, will soon begin the regulatory permit process to attempt to demonstrate commercial levels of production.

    Of the rest of the PEDL137 licence ownership, stakes range from Alba's 9.75%, then Doriemus, Solo Oil, Stellar Resources all owns 6.5% each, while Evocutis owns a 1.3% interest.

    - See more at:
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    Aberdeen Oil execs using watches, jewellery and cars as collateral

    Cash-strapped oil executives are using expensive watches, jewellery and even cars as collateral for short-term loans as the “posh pawn” market takes off in Aberdeen.

    Business is so good in the north-east just now that one Scottish company specialising in high-end secured loans plans to set up shop in Europe’s energy capital.

    Neil Mitchinson, director of Edinburgh Asset Finance (EAF) said he was seeing growing demand for his services from clients in and around the Granite City.

    He added: “We got a luxury 4×4 from Aberdeen only last week.

    “The owner … had a short-term cash flow need but understandably wanted to remain anonymous.”

    Mr Mitchinson has a warehouse in Edinburgh full of Ferraris, Range Rovers, Porsches and other expensive cars which are being held as security for financial quick fixes.

    He said the oil and gas industry downturn was driving an increasing number of people from the north-east “from riggers to people working at senior management level” to cash in on their valuables.

    Among the first items to be sacrificed are expensive watches made by the likes of Rolex, Breitling, Cartier, Panerai and Patek Philippe.

    Mr Mitchinson said high rollers in Aberdeen were mostly pragmatic about their need to realise cash in a hurry through upmarket pawn, borrowing against items which they can live without for a little while.

    “It is no secret that the local economy up there is going through a bad spell,” he said, adding he was currently looking for suitable office space in the Granite City.

    Mr Mitchinson said his business – authorised and regulated by the Financial Conduct Authority – was a world away from the high street pawnbrokers and payday loan companies which charge exorbitant interest rates.

    EAF offers seven month loans from £1,000 to £250,000, with interest rates typically ranging from 3% to 7%.

    Cash has been secured by items including original oil paintings and other high-end works of art, fancy cars and even a shooting estate.

    “These are things people treasure and they want them back,” Mr Mitchinson said, adding his customers nearly always returned to retrieve their goods.”

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    Calgary Condos Post Biggest Decline Since Financial Crisis

    Demand for new condominiums in Canada’s oil patch sank the most last year since 2008, according to data from Altus Group Ltd. Sales of condos in Calgary fell 38 percent to about 3,000 units from 4,805 units the prior year, according to the Toronto-based real estate consulting and advisory firm. That’s the biggest year-over-year drop since the financial crisis in 2008, when transactions fell 72 percent to 1,103 units.

    The drop-off doesn’t bode well for 2016. Calgary, the biggest city in the oil-producing province of Alberta, ended 2015 with one of the highest inventories of unsold condos, at 3,356 suites in the fourth quarter, according to Altus.

    Demand has dropped with the price of oil, which has slumped about 40 percent in the past 12 months and fueled more than40,000 job cuts across the country.
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    Alternative Energy

    Solar tower in desert promotes Israel's renewable energy drive

    In a vast expanse of open desert in southern Israel a 787-foot tower (240 metres) is taking shape that its builders hope will help make solar energy much more cost effective.

    The tower, being built by Israel-based Megalim Solar Power, whose shareholders include General Electric, will be taller than other solar towers, enabling it to generate up to 121 megawatts of power.

    Due to be completed late next year at a cost of 3 billion shekels ($773 million), the facility will provide around 1 percent of Israel's electricity under an agreement with the Israeli government, which aims for 10 percent of the country's energy needs to be provided by renewables by 2020.

    Most solar power in the world is generated by photovoltaic (PV) panels, which can be installed anywhere from a roof to a backyard. In contrast, towers that use concentrated solar power, known as CSP, require a lot of land and are only cost-efficient in large-scale projects.

    For that reason they have seen limited deployment, and mainly in the United States and Europe.

    Megalim's tower in the Negev desert, which stands out for miles around, is surrounded by 50,000 computer-controlled mirrors, to project the sun's rays. They are bigger than in previous projects and controlled over a dedicated Wifi network, rather than with expensive cables used in the past, Megalim says.

    The tower is privately funded but when completed the Israeli government has guaranteed to buy the power from it at an above-market price.

    That means it will be effectively subsidised, but Megalim says it is working to furtherreduce costs. Shareholders including power tower pioneer Brightsource Energy as well as General Electric, which will provide the turbine, want to build more such towers around the world.

    "We're making strides in efficiency, we're making strides in compressing the time of construction," said Megalim's Chief Executive Eran Gartner. "We're going down a learning curve that will help us to offer solar energy at the most competitive rates."

    To narrow the gap with PV panels, which make up 95 percent of the solar market, the U.S.-based Solar Energy Industries Association says CSP needs to reduce hardware costs and to twin its output with an energy storage element that will allow electricity production at night.

    Megalim's tower in Israel will generate heat of up to 540 degrees Celsius (1,000 Fahrenheit), producing steam to drive a turbine. It will not be able to store energy but has overcome another problem that beset solar towers - whether or not power towers were killing large numbers of birds.

    When Brightsource built a three-tower facility in Ivanpah, California in 2013 with local partners, some experts said heat from its mirrors would incinerate tens of thousands of birds each year. A public outcry about the issue was in part responsible for Brightsource cancelling plans to build another tower complex in California.

    An official report, based on findings by biologists and teams of dogs that combed the Ivanpah facility, documenting and categorizing every bird death, has since shown the impact to be low.

    Brightsource has come up with new techniques to minimize the damage, said Joe Desmond, Brightsource's senior vice president of government affairs and communications.

    It sprays vaporized grape skin extract, a mild irritant, and emits sounds of natural predators near the tower to keep birds away, he said. It has also developed algorithms to lessen the convergence of rays from mirrors on standby, so the air does not get as hot.

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    Uranium in South Africa’s Karoo may be ten times estimate

    Peninsula Energy, an Australian listed uranium explorer and producer, said deposits of the nuclear fuel buried in South Africa’s semi arid Karoo region may be ten times greater than the 57 million-pound resource it has already found.

    Peninsula is building upon exploration work done by Esso Minerals in the 1970s, which indicated resources of 450 million pounds to 600 million pounds, chief executive officer John Simpson said in an interview in Cape Town on February 10. About 200 million pounds of uranium are consumed globally each year, he said.

    “Potentially, it’s a very significant mineral deposit,” he said. “We’ve gone through scoping and prefeasibility studies. That has been very positive. We think we can produce uranium from here even under the current environment.”

    Spot uranium prices have fallen about 49% to $34.15 a pound since the Fukushima nuclear disaster in March 2011 as some governments shied away from building new reactors. Contract prices, which account for 95% of trading in the fuel, are about $45 a pound, according to Peninsula, which already produces uranium in Wyoming.

    The company’s prefeasibility study indicated that three million pounds of uranium could be mined each year in the Karoo at costs in the low $30s a pound, Simpson said. Perth-based Peninsula’s aim is to begin mining in 2019 or 2020. The resource has a uranium content of about 1 100 parts per million, considered “low-grade ore” by the World Nuclear Association.
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    Precious Metals

    China dampens gold's rally as peak demand period wraps up

    Chinese investors sold into gold's rally after returning from a week-long holiday, a sign they do not expect prices to go much higher and cannot be counted on to support the market with post-Lunar New Year demand set to falter.

    A lack of buying interest going forward from top consumer China could cut short this year's rally in gold, one of the biggest in years, with the metal up nearly 14 percent since the beginning of 2016.

    Chinese selling helped push gold down more than 2 percent on Monday.

    "In China, people think that the rise of the gold price is driven by a safe-haven effect," said Shu Jiang, chief analyst at Shandong Gold Group in Shanghai, noting that usually such rallies are not long-lived.

    "People have reservations about such a rise."

    Consumers in China, along with those in No.2 buyer India, typically purchase gold in jewelry form, hunting for bargains when prices dip or if they are confident of a sustained rally.

    Bullion dealers across Asia said the Chinese were offering gold on Monday, looking to book profits with prices about $60 an ounce higher than they were before their week-long holiday.

    "They bought a lot of gold when prices were in $1,000s and $1,100s, so now they are selling," said a dealer in Hong Kong. "Below $1,200, they will be buyers again."

    Chinese imports rose late last year, with December imports reaching their highest since March 2013, as demand climbed amid slumping stock markets and a weakening currency.

    Late 2015 imports were also supported by anticipation of buying during the Lunar New Year holiday - also known as the Spring Festival - when gold is popular as a gift.

    During the Spring Festival break, gold and silver jewelry sales rose 22 percent from year-ago levels, China's ministry of commerce said over the weekend.

    Demand typically slows after the holiday.

    "The real challenge is now ... after the Spring Festival, how much the market could dry up," said Samson Li, senior analyst with GFMS, a metals consultancy owned by Thomson Reuters.

    Consumers who bought gold over the last few years had their fingers burnt as prices fell by more than a third between 2013 and 2015.

    Chinese gold demand could increase this year from 2015 only if the price rally continues or as long as prices don't make lower lows than those seen in 2015, Li said.

    In December, gold prices hit their lowest in nearly six years at $1,045.85 an ounce.

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    Base Metals

    Vedanta inks pact with Odisha to set up Aluminium Park in Jhasarguda

    Business Line reported that Vedanta has signed an agreement with the Odisha government to set up an aluminium park adjacent to its aluminium smelter at Jhasarguda. The company has a 1.6 million tonnes production capacity at the smelter. The proposed park, to come up on 240 acres, has the potential to attract investment of INR 1,000 crore and generate direct and indirect employment to about 17,000 people.

    Mr Abhijit Pati, CEO-Aluminium, Vedanta, told Business Line that “The company would be able to sell aluminium in molten form to manufactures within the park, rather than supplying it in ingots or sheets, thus saving huge costs for both Vedanta and the manufacturers. It would also make the production of aluminium products cost-efficient.”

    He told “Units within the park can start production at short notice and Vedanta, with adequate smelting capacity and 3,600 MW of power generation, can assure uninterrupted supply at very competitive prices.”

    He added “The Odisha government will provide the necessary infrastructure for setting up the industries with financial incentives. Both Vedanta and the Odisha government will hold global road shows to attract investment.”

    Mr Pati said the company is importing alumina to produce aluminium, as it is yet to get captive bauxite mine allocation. He said “We would produce about 0.5 million tonnes of aluminium this fiscal. The cost of production is higher as we have to pay import duty of 7.5 per cent on alumina and with the downturn in metal prices it becomes even more difficult.”
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    Mercedes unveils its first aluminium diesel four engine

    Mercedes has been releasing more details about the OM 654, its first all-aluminium four cylinder diesel engine. The new power unit will appear in the next E 220 d in the spring.

    “The new family of engines embodies over 80 years of Mercedes-Benz diesel know-how. The new premium diesels are more efficient and powerful, lighter and more compact – and they are designed to meet all future global emissions standards,” said Prof. Dr. Thomas Weber, member of the Daimler Board of Management with responsibility for Group Research and Head of Mercedes-Benz Cars Development. “In our opinion, the diesel engine is indispensable in trucks and cars if we want to further reduce the CO2 emissions from traffic.”

    In the two decades since 1995, the average consumption of the passenger car fleet where Mercedes is concerned has fallen by almost half from 9.2 l/100 km (230 g CO2 /km) to 5.0 l/100 km (125 g CO2/km). Already today, Mercedes-Benz Cars has 68 models that emit less than 120 g/km – and 108 models with the efficiency label A+ or A.

    The modular family of engines will be used across the entire range of Mercedes-Benz cars and vans. There are plans for several output variants as well as longitudinal and transverse installation in vehicles with front-, rear- and all-wheel drive.
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    World’s first deep sea mining vehicles set for seabed

    With an estimated 70% of the world’s mineral deposits located under the ocean, subsea technology developed in the oil and gas sector could help open up the potential of submerged mining.

    UK subsea engineering company SMD is one firm that has committed to the sector with the launch of the world’s first deep sea mining vehicles for testing in the Middle East.

    The Tyneside firm was awarded a contract to design and build the massive underwater mining vehicles for Canadian listed company Nautilus Minerals in 2007. Eight years on, the machines are complete.

    As well as the three mining machines or Seafloor Production Tools (SPTs), SMD designed and manufactured the full spread equipment required to remotely operate, launch and recover the SPTs from the deck of the ship onto which they will be installed in 2017.

    SMD conducted rigorous commissioning and factory acceptance testing on the full spread of equipment in dry conditions on land at their production facility in Wallsend, North East England prior to shipping.

    The SPTs will now undergo extensive wet testing at the port facility in Oman which is designed to provide a submerged demonstration of the fully assembled SPTs, prior to commencement of the first mining operations in 2018.

    Subsea ore grades are much higher as the vast resources are untapped and have not necessarily been subjected to weathering or erosion. At shallow depths and in calm water environments, the subsea mining industry has already emerged.

    Tin, ilmenite and magnetite mining has been mined for many years. Recent developments have added alluvial diamonds and gold to the list albeit on a relatively small scale.

    Improvements in riser technology from the oil & gas industry and advances in cutting technology from the mining industry have now paved the way for the targeting of deeper reserves.

    SMD chief executive Andrew Hodgson commented: “Our engineers have taken proven technology which we have developed over 40 years, and adapted it for a new application to suit Nautilus’ needs, and we’re very proud of that.

    Nautilus chief executive Mike Johnston said the machines would be used on the firm’s Solwara 1 project, located at 1,600 depth in the Bismarck Sea of Papua New Guinea. The project aims to mine high-grade copper and gold deposits.
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    Steel, Iron Ore and Coal

    China Jan coal imports down 9.24pct on year

    China’s coal imports, including lignite, thermal and metallurgical coal, slid 13.7% on month and down 9.24% on year to 15.23 million tonnes in January 2016 -- the 18th consecutive year-on-year drop, showed data from the General Administration of Customs (GAC) on February 15.

    The decline was mainly due to the continuously flat domestic demand from downstream sectors.

    The value of January imports stood at $723 million, plunging 36.6% on year and down 18.6% on month. That translated to an average price of $47.5/t, $20.44 lower than the year prior and down $2.88/t from December last year.

    The GAC didn’t give a breakdown of the January imports, which could be available late this month.

    Attached Files
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    China Jan coal exports soar 164pct on year

    China exported a total 610,000 tonnes of coal in January 2016, soaring 164% on year and up 39% on month, showed data from the General Administration of Customs (GAC) on February 15.

    It was the second consecutive rise on both year-on-year and month-on month basis, thanks to the enhanced price competitiveness of domestic coal. However, coal exports still stayed at a lower-than-expected level.

    The value of the January exports was $44 million, increasing 71.7% from a year ago and up 10.1% from December last year. That translated to an average price of $72.14/t, falling $38.81 on year and down $18.89/t on month.

    The continuous decline in China’s coal exports since 2003 was mainly because the government cancelled the export tax rebates and started to levy tariffs in 2010.

    Though the export tariff was cut from 10% to 3% from January 1, 2015, the falling trend did not reverse that year.  

    In the whole year of 2015, coal exports of China stood at 5.33 million tonnes, down 7.1% from a year ago.
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    Aurizon counts on cost cuts for growth as coal slump bites

    Aurizon Holdings, Australia's top coal rail hauler, reported a 23 percent slide in first-half core profit on Monday, hit by weaker coal volumes and the loss of some contracts, and warned it saw little growth ahead except from cost cuts.

    Oversupply, uncertain demand and weak prices have led Aurizon to shelve its two main growth projects - a coal rail line in the Galilee Basin in Queensland and the West Pilbara iron ore rail and port project in Western Australia.

    With no growth spending on the horizon, the company paid out all of its first-half core profit of A$237 million to shareholders, raising its interim dividend by 12 percent.

    Chief Executive Lance Hockridge declined to predict whether the West Pilbara project or the Galilee Basin rail line it had planned to build for India's GVK and billionaire Gina Rinehart's Hancock Prospecting was more likely to go ahead within the next 10 years.

    "The immediate to medium term prospects are so clouded - I wouldn't want to hazard a guess as between either of those," he told reporters.

    Underlying profit fell to A$237 million for the six months to December from A$308 million a year earlier, hurt by a 5 percent drop in tonnages and an 11 percent drop in revenue. The result was just below a Citi forecast of A$241 million.

    The drop included an A$18 million provision for debt owed by tycoon and politician Clive Palmer's Queensland Nickel refinery, which is in voluntary admninistration.

    Aurizon reported a net loss of A$108 million, hit by A$426 million impairments on the Galilee Basin coal rail project and the West Pilbara Iron Ore project.

    The company narrowed its forecast for coal volumes to between 204 million and 209 million tonnes for the year to June 2016, the second time it has trimmed the top end of its outlook this year.

    It expects to report full year earnings before interest and tax between A$845 million and A$885 million, which is in line with market forecasts, according to Thomson Reuters I/B/E/S.

    Aurizon said it would cut its forecast capital spending by up to A$200 million over the next 18 months and planned to cut at least A$380 million in operating costs by June 2018 to shore up its profit margins.

    Its shares fell 1.8 percent, continuing their underperformance against arch rival Asciano, which is the target of a heated takeover battle.
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    Iron ore price surges

    The price of iron ore soared on Monday with the Northern China 62% Fe import price including freight and insurance (CFR) adding 5.6% to $45.60 a tonne according to data from The Steelindex.

    The steelmaking raw material has gained 6.3% in value so far in 2016 hitting its highest level since mid-November. The price declined to a near decade low of $37 at the end of last year, but after today's advance it's firmly back in a bull market, generally defined as a more than 20% move from a low.

    The latest leg up came after Chinese iron ore imports continued to impress with January cargoes of 82.2 million tonnes, down from December's giant tally but up 4.6% on a year on year basis.

    Imports now represent nearly four-fifths of Chinese steelmakers' iron ore supply

    A decline from the record setting pace in December of over 96 million tonnes was expected due to seasonal factors and the slowdown ahead of Chinese new year holidays. Cargoes for the whole of 2015 also set a new record of 952.7 million tonnes, up 2.2% compared to 2014.

    Domestic Chinese producers which struggle with low grades and high production costs have been gradually pushed out of the market and replaced by imports. Imports now represent nearly four-fifths of Chinese steelmakers' iron ore supply.

    Many Chinese mines are also staying open only because of support from local governments pressured to keep jobs safe, but Beijing's stated policy of trimming overcapacity in its heavy industry means more mines will be closing.

    The country's miners produced some 350 million – 400 million tonnes a year on a 62% Fe-basis in 2014, although reliable stats are lacking (this figure is calculated working backwards from pig iron production). According to some estimates domestic output has now fallen below 200 million tonnes with further declines likely.

    Analysts are skeptical about the longevity of iron ore's rally and point to the fact that Chinese steel production (nearly half the global total) is set to decline further in 2016 after last year brought to halt three decades of unbroken growth.

    A supporting factor in the recent run-up in the price has been the temporary closure of Australia’s Port Hedland and Dampier ports due to adverse weather. The Pilbara ports represent nearly 30% of the global trade. At the same time the suspension of activities at Vale’s Port of Tubarão – responsible for roughly 8% of global shipments – also boosted prices.
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    Evraz mulls South African closing, placing 2,100 jobs at risk

    Evraz Highveld Steel & Vanadium Ltd. is poised to become the latest victim of a global steel supply glut that has eroded the margins of producers as China floods offshore markets with cheap exports. While Evraz Highveld was offered protection from creditors in 2015 as it sought a new owner, a deal failed to materialize after opposition from its parent and when the preferred buyer pulled out.

    The decision to consider winding down Evraz Highveld’s operations comes after the Department of Labor suspended the payment of a training allowance on behalf of some employees, the company said in a statement to the Johannesburg stock exchange on Monday.

    Closing the operations “would see the retrenchment of all employees,” Evraz Highveld said. The company will provide an update on Feb. 23, it said.

    About 2,187 staff would be affected by Evraz Highveld’s closing, trade union Solidarity said in an e-mailed statement.
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